Posted on: Sunday, January 28, 2001
Uncertainty about U.S. economy likely to keep markets volatile
Bloomberg News Service
Suspense about what the U.S. economy will do next is expected to keep Wall Street tied up in knots, with the Dow Jones industrial average, Nasdaq composite index and other indexes down modestly. Combined with fears of more earnings warnings and weak earnings reports, that is likely to make for additional volatile days.
"If this is a shallow, short recession," then the stock market could recover rapidly, said Robert Morris, chief investment officer at the fund management group Lord Abbett in Jersey City, N.J. "But we may have a little bit more time to go here before the clock gets reset, which means that it could be a little bit deeper and longer recession than many people expect."
The uncertainty over the U.S. economy is also affecting markets in developing nations from East Asia to Latin America.
Many nations are looking forward to their best economic growth in two decades, but many fund managers, concerned about a slowdown in the United States, are withdrawing from risky overseas markets and investing in safer securities such as U.S. Treasuries, analysts said.
That has helped fuel a slide in dozens of emerging markets this year, and spurred the International Monetary Fund to prepare emergency loans for two of the biggest, Turkey and Argentina.
"The concern today is the industrial countries will contaminate the emerging markets," said Mohamed El-Erian, who manages $7.5 billion in debt for Pacific Investment Management Co.
Pimco, which has the world’s biggest bond fund, has been worrying about a possible U.S. recession for the past four months, making the company more wary in its investments, El-Erian said. It is not alone.
"I see our clients putting their money in cash" as they move away from riskier overseas markets, said Michael Dicks, chief European economist at Lehman Brothers International.
The International Monetary Fund wrote in a recent report: "The tight link between the performance of emerging and U.S. asset markets has tempered our optimistic outlook for emerging markets."
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